There's no slippery slope here because it's a decision firmly within the existing status quo. If you can show that the debt was obtained via fraud, you will not be made to pay it. IIRC this has specifically come up with Robinhood, where a /r/wallstreetbets user that was accidentally given excessive amounts of leverage was not pursued for the inevitable mid-five-figure account deficit that they racked up.
No, it's about a debt to obtained fairly but used to pay for something being fraudulently offered by a third party.
> Owe $325 on your credit card for buying a vacuum cleaner that was fraudulently misrepresented to you? Courts will not enforce the debt,
Unless the charge was fraudulent, yes, they will.
> hence the existence of chargebacks.
Chargebacks exist because of special legal rules applicable specifically to open-ended credit like credit cards, not a general principle that debt to one party resulting from fraud by a third party is invalid.
There's a very big difference between using credit to obtain cash to spend as payment for goods and services, and using the credit itself to pay for goods and services. If you took on a cash advance and then used that to buy a misrepresented vacuum, you're still on the hook for the cash advance. Student loans are not a cash advance, they're an agreement to undertake a debt in exchange for a specific education. If that education was fraudulently misrepresented, the debt was simply not obtained fairly, it was obtained through fraud.
> Unless the charge was fraudulent, yes, they will.
The vacuum cleaner being fraudulently misrepresented makes the charge fraudulent. It was authorized under false pretenses.
>not a general principle that debt to one party resulting from fraud by a third party is invalid
Chase is not third-party to your credit card transactions. They're directly involved and have contracts with the merchant's processing bank governing the relationship. Every credit card transaction is an agreement of the form "I get the stuff, the merchant gets paid according to their agreement with their processing bank, and I agree to owe the credit card company some money". If the vacuum cleaner is misrepresented to you, that entire agreement is invalid due to fraud, including the obligation to pay the credit card company.
The legislation enacted over chargebacks were created so that A) this class of dispute could be cheaply adjudicated by the companies involved rather than messily and with great expense via the court system, and B) to provide a streamlined way to ensure that merchants pay all the costs involved with the process.
Fraud is a well-defined crime. It requires intentional deception for a small number of specific reasons (most commonly, to gain money or something else of value). If in doubt, consult an attorney in your jurisdiction to determine whether you have been the victim of fraud according to the laws of your local area (which do vary across state lines within the US, to say nothing of internationally).
But this isn’t about forgiving student loans where someone has been harmed. It’s about forgiving student loans where someone has been the victim of fraud.
This is a good point, however my take is that if what you're saying is true (and I believe it is) - there is less reason to forgive the debt.
There already exists mechanisms to take assets from the institution that caused the harm, liquidate and compensate those who have been harmed.
Is it necessary to unilaterally forgive the debt? Maybe (I'm not sure myself as I mentioned in the OP).
Those people will already have leveraged debt, and purchased services and depreciated goods with the cash gained by the fraud, making the people they purchased those things from secondary beneficiaries of that fraud. The people who made the loans to the students are also secondary beneficiaries of the fraud (if those loans are paid back with interest.)
The real question is whether you want to put the onus of evaluating the risk that something may be a fraud on the sellers of goods, or on people making loans. I would argue from a lot of different directions that it was obviously put in the right place in this case.
To begin with, you can buy a candy bar with fraudulently obtained funds, and if every candy bar seller was required to evaluate the risk that the funds used to buy the candy bar were obtained fraudulently, the economy would grind to a halt. Since this is a pragmatic argument, it obviously becomes less valid when someone sells 10,000 candy bars; we may not mind if they have to do some minor checking, like obtaining your full name, or maybe where you work.
Another is that assessing (and taking) risk is literally the only job of someone making a loan, and assessing the risk of a school being a fraud seems an obvious part of that when you're making a loan specifically for attending that school. If someone making a loan isn't doing that, they aren't doing anything. It's just a rent being collected, a concession granted by the state (as the state is expected to expend effort to enforce the debt.) This isn't a proper function for a state, this is corruption.
You think you're endorsing personal responsibility here, but you're really endorsing bailouts for investors.
There's a business plan here (which I think is really common in the world if you look for it) where you create a fraud, loan money to the victims of that fraud, fold up and liquidate the fraud, then use the state to pursue the victims for the loan. If you also manage to be the beneficiary of the fraud - lets say that the fraud sells all of its buildings which are then leased back to them, resulting in the fraud having a negative worth when it is liquidated, and you pay yourself large consulting fees for creating that arrangement - you've double-dipped.
In the closed system of 1) the fraud, 2) the victims, 3) vendors supplying the fraud, and 4) lenders to the victim, a loan for $10,000 can't be turned into $20,000 of benefit, all ultimately sourced from the victim. This only happens if the state steps in and chooses the benefit of the lender and the vendors above the victim. This would be the state officially designating the fraud to be a currency issuer.
Lastly, it doesn't set a precedent because debt forgiveness, especially in cases like this, happens all the time. It's a sign of corruption if it doesn't happen.
Criminal fraud is a thing, but the sense of “fraud” here is more related to the tort than the crime; the latter is much narrower, though both are well-defined.
I don't know if they have plans to do this, but they should turn around and attempt to collect the debt from the schools that defrauded the students rather than the students who were victims of that fraud.
And frankly, debt forgiveness isn't a bad policy. It's essentially what bankruptcy relief is (relief that's available to almost all other debt holders).
My wife and I worked our butts off to pay off our student debt 10+ years early. How is it fair that our peers with the same jobs, who didn't scrimp and save, will achieve the same outcome we did if the government just decides to take all of that personal debt and basically just add it to the national debt (or expand the money supply)?
Beyond that, when the government does that, OUR taxes will be going to pay off our FRIENDS' debt (or we'll be paying via inflation), even though we ourselves worked to pay off our own debt early. This is grossly unfair.
Presumably we all want those free-spending fools to live without suffering (I certainly do). They should have food, shelter and freedom to improve themselves. If they can't pay the money back then it is stupid to pretend they will (and politically destabilising). But all this doesn't outshine the fact that people who paid off their student debts the hard way made better choices and probably worked harder to boot.
Sometimes the rules need to change midway through the game of life, but the government shouldn't be monkeying around with the score at the same time. The people who borrowed money and couldn't pay it back made terrible choices. People who made good choices should be rewarded more than people who make bad choices and given first pick of resources and opportunity. Otherwise people who make bad choices will end up owning stuff they'll muck up and in positions of authority where they will muck stuff up that they don't own.
Now that is mean to the people who took out loans. Bad luck. If they want a nicer tone they can cover their own costs. It isn't reasonable to take someone else's money, government rolls in and hand-waves paying it back (probably has the tax payer cover the costs in some complicated bailout, who knows) and then expect everyone to be treated like they are behaving responsibly and respectably. There has to be some level of recognition the magnitude of the mess-up here. People are making life-shatteringly bad decisions and dragging other people with them. That needs more consideration than wiping the slate clean and shrugging hard.
But obviously the usual bankruptcy process (they've got nothing and basically start from scratch) would be fine. If they're broke they're broke.
So you basically think that people who were defrauded should have an debt-albatross hanging over their necks (potentially for their whole lives), so you won't feel like a sucker for paying of your own student debt?
Were you defrauded by the school whose loans you worked so hard to pay off?
Second, what about all of the other victims of crime. Are people who were defrauded by a private school more worthy of relief than carjacking victims? Arson victims? What about victims of other frauds?
What about non-monetary crimes? Are people who were defrauded by private schools more worthy of relief than rape victims, or the families of murder victims?
It's just not a role of government to provide monetary relief (as opposed to justice) to victims of crime. And even if it were, I see no reason why victims of private school fraud should receive relief before all others.
Mortgage and car loan issuers always force you to purchase adequate insurance. If you are a victim of arson or carjacking, you won't still owe the lender the full amount of the loan—insurance will make both you and the lender whole. There is no insurance for education though. So someone has to lose money here. The question is, is it better for the student to be out of the money or the lender.
Seems like you moved the goalpost here. Do you think debt forgiveness is a bad policy when it comes to people who were not defrauded?
… then the federal government retroactively made them non-dischargeable.
I mention this to highlight that changes in the regulatory environment don’t always favor the borrower, nor are there always concessions made to limit harm to the injured party.
That’s exactly the point of how debt markets are supposed to work. Higher risk borrowers are more likely to default, so pay higher interest rates to cover the % that do. If as a borrower you’re willing to pay more for your debt to give you that option (and quite frankly, all debt should be this way. There’s no debt an LLC can’t write off, why is there debt individuals can’t write off?), why is this bad?
Retail traders' margin debt is secured. However I agree the mechanics of margin debt has the ability to inflict colossal pain on normal people.
> let people take responsibility for their own actions...
The government already lost the money. The borrowers are already in default. They are never going to pay this money back. To put in perspective:
"Only 43% of public two-year college students, and 34% of for-profit college students who entered repayment on their loans in 2011 had paid even a dollar toward their loan principal after five years." (https://elizabethwarren.com/plans/student-loan-debt-day-one)
Is that relief? No. Is it stimulus? No. The lent money was spent long ago. You're not giving money to borrowers who are already in default. You are taking a number in a government spreadsheet, and making it smaller.
If you're going to do this fauxconomics dystoplican point of view, don't warble garbage about civilization and responsibility. Focus on the mechanics of what is actually happening.
Indeed, I would agree bailing people out from margin calls would significantly reduce harms, but on the other hand, that's totally politically untenable, and also actually expensive. Whereas forgiving debt that is already in default costs nothing.
Forgiving the debt drives up tuition costs even further by changing the risk calculation for borrowers, making more borrowers willing to borrow ridiculous amounts and therefore increasing the amount of money available to schools.
Beyond that, forgiving the debt punishes all of those students who worked hard and sacrificed to pay off their debt, and rewards those who didn't.
This is a grossly unfair policy.
However, my rebuttal is that the colleges referenced in the article were for-profit and unaccredited to begin with. In other words, the students of said schools willingly went to schools without any level of vetting (or they were vetted and failed).
Given this there are two questions:
1. Did the school commit a crime? If so, there's no need to forgive the debt - the government and/or students should go after the school, and our existing legal process makes things right.
2. Were the students harmed? This is obviously more difficult to prove in general. Let's suppose the students were harmed (since the article doesn't really specify what it means by harm). Should the government continue to subsidize people who are harmed in this way?
My take is if we want to reduce harm, why not just forgive all debt? Clearly if all debt is forgiven, then all harm caused by such debt is reduced to zero.
As a society we have already decided people should be responsible for some things, so the question is why specifically in these circumstances are they being forgiven? And how is the government going to create the circumstances where they don't have to do this again?
False. The two institutions that together account for the majority of students at issue here were ITT Tech (now defunct, but was nationally accredited) and Corinthian Colleges, Inc. (also now defunct, but many of their constituent institutions were nationally or regionally accredited.)
Nonaccredited schools aren't qualified for the federal student loans being forgiven here.
> Did the school commit a crime?
That's a weird standard. Why would it need to be a crime rather than a tort?
> so, there's no need to forgive the debt - the government and/or students should go after the school, and our existing legal process makes things right.
Er, the majority of the students affected are from institutions that no longer exist, largely because of their frauds. There is no one to go after.
You're correct, however I believe ACICS, who accredited both (or a least some of the institutions) was later found to be a poor accreditor by the DoE and was stripped of its ability.
Nonetheless, your point is that at the time they were both accredited and those were able to get the federal student loans. I stand corrected.
When the school lies about how many graduates are placed at SV tech companies, when they lie about who teaches and designs the courses, when they lie about their “connections” to employers, enticing students to take debt for their false product, the problem is with the school... not the victim.
Do you also forgive rapists who say, “but she was wearing a miniskirt! She enticed me to do it!” The schools are the rapists here. The students are the victims.
The average tuition & fees for public, in-state college in 2021 is $9687 [0]. Adding room & board increase it to 20,050 [1]. So you could, theoretically, get a 4-year degree at a decent school for under $100,000.
Considering that a 4-year degree increases earnings, on average, from $38,376/year to $59,124/year (and also decrease unemployment from 5% to 2.4%), that's $20,748 per year increase. Over a 40-year career, that's $829,920 extra assuming no raises.
All of these figures can be adjusted for margins of error and you'll still be ahead with a 4-year degree.
[0] https://nces.ed.gov/fastfacts/display.asp?id=76 [1] https://nces.ed.gov/fastfacts/display.asp?id=76 [2] https://smartasset.com/retirement/the-average-salary-by-educ...
Now if you take on $500,000 in debt because you choose to go to a private college with no grants or scholarships, that's a different problem. And maybe it's not a good choice. But that's a different story than a 4-year public, in-state university.
Ordinary people? Clearly no.
"Pile of trash" indeed.
Ugh. This again. College != vocational school. You don’t go to college to learn a trade or gain skills to get your first job. You’re building skills that you’ll use through the entirety of your career. Communication and critical thinking skills will never become obsolete.
True, but you don't need a college degree to learn communication or critical thinking skills. For some careers they are generally useful, but for a lot of careers they're just a tax on entry.
Student loans that were basically stolen by fraudulent schools, such that the borrower gained no education they can use to possibly pay the loan back - who benefits from saddling them with that forever? Their only possible options at that point are to labor in poverty forever (the loan's still not getting paid back), or somehow take on more loans to try to get an education again, now slowly paying down two student loans instead of one. Who benefits here?
In the end if lenders are somehow irreparably harmed by debt forgiveness in corner cases like this, perhaps they should be responsible and not issue loans to people who can't pay them back. It's always about "personal responsibility" until consequences come calling for financiers who make unbelievably stupid decisions and they want the taxpayer to foot the bill and bail them out.
The ideal state of capitalism is $0 labor costs, so: more's the better. Lots of Business majors and MBAs graduate from university under this orthodoxy every year, and have, for a long time.
This is true. My point though is based on what you said, should we forgive all debt? I would imagine you would not agree to that, so then we have to discuss the circumstances in which the government should discharge debt.
> Student loans that were basically stolen by fraudulent schools, such that the borrower gained no education they can use to possibly pay the loan back - who benefits from saddling them with that forever? Their only possible options at that point are to labor in poverty forever (the loan's still not getting paid back), or somehow take on more loans to try to get an education again, now slowly paying down two student loans instead of one. Who benefits here?
There's a bit to digest here. There are two considerations:
1. The student didn't gain education.
2. The school took loans they shouldn't have received on behalf of the students.
If we believe (2) is the crime, then we already have mechanisms to punish the school, liquidate them and make those who have been harmed whole again. I don't see why the government needs to be involved more than they already were (in giving the loans).
If we believe (1) is the issue, then this is something that's not unique to for-profit schools. Given it's a subjective sort of thing I imagine it would result in anyone who majored or something they don't feel was useful or receiving an education they didn't feel was "worth it" asking for loan forgiveness. That doesn't seem sustainable either.
Finally, if (2) occurred but the student did receive benefit, should the loan be forgiven? I don't know the answer but it's worth considering.
All of that aside, I agree with what I believe your point to be at the end. We shouldn't be forgiving companies that make bad decisions, either.
How's that? Seems like the precedent was set a very long time ago: https://en.wikipedia.org/wiki/Jubilee_(biblical)
This situation is ad hoc, meaning both parties take on the debt assuming repayment, then one party exits, leaving unpaid debt behind. Spontaneous debt dumping, unlike the 50 year cycle in ancient Israel, is destabilizing and encourages debtors to complain loudly, and perhaps violently, to get out of the debt they owe. Doing so successfully encourages consumers to take on bad debt, which is bad for the economy (see 2008).
I was specifically responding to the 'generally' aspect of the comment, where I think 'generally' debt forgiveness can be a very useful concept, and good for society.
Governments don't seem to mind inflating their currency sometimes which is (if denominated in their own) essentially forgiving themselves of debt ;)
These “universities” lied to prospective students. Here is just one example:
“ The FTC says the university wrongly suggested that it worked closely with high-profile companies to develop its courses. And it says the school's "Let's Get to Work" ad campaign was one example of how it hyped connections with potential employers.
In one video in that campaign, a UOP student is seen driving through a school parking lot, passing spots that are filled with the iconic logos of successful companies.”
https://www.npr.org/2019/12/10/786738760/university-of-phoen...
This has nothing to do with neuron count and everything to do with fraud and lies.
The major example of debt forgiveness I can think of is bankruptcy and as far as I am aware American bankruptcy laws are considered excellent precisely because of the forgiveness.
But setting aside the general case, forgiveness for massive widespread known fraud is probably the easiest example of a case where it can be achieved successfully.
The plot twist is that there already is in the form of accreditation. Anyone can trivially look-up whether or not any school is accredited or not.
So the question remains, if someone chooses to go to an unaccredited school and they get burned should the government foot the bill?
So you think we are at the top of a slippery slope and not realizing we've been at the bottom of it for a long time. So this isn't really about the university system its about the entire fabric of society, not realizing how society already functions.
Fascinating.
Department of Education's outcome is a unilateral decision by the confirmed head of a federal agency, the latter requiring something far more involved that nobody is asking for.
However, I will say the fact that it's DoE related isn't really relevant at all. From the article it seems the main point was that students were misrepresented and later harmed as a result of taking a loan.
Those particular circumstances do happen to be shared in some instances of taking on margin debt.
On one hand, this is great for the students who were affected. On the other hand, what mechanisms exist to prevent this from happening again? Debt forgiveness in general is a terrible precedent to set.
EDIT: Finished reading the AP article. I'm curious what constitutes harm per Cardona's quote:
Is it the lack of opportunity from the for-profit school? If so there are plenty of non-profit schools that offer useless degrees in the forms of useless/impractical majors.Is it the fact that for-profit schools often give out degrees that cannot be transferred to accredited ones? If so there are plenty schools that teach you things that aren't really transferrable like fullsail. There are also liberal arts and technical not-for-profits whose classes aren't necessarily transferrable between them.
Is it questionable advertising of the benefits of the school? Again, not-for-profit accredited schools often skew the benefit of their services as well.
I'm curious how exactly they have determined the "harm."
Pedantically, one could argue easily that any action anyone takes that does not yield a benefit has harmed them. For example Margin Debt is at $800 billion (https://www.bloomberg.com/opinion/articles/2021-03-17/do-mar...) - inevitably that will also lead to some catastrophe. Should that also be forgiven? One could argue that organizations such as Robinhood and Webull have been gamifying the stock market to the point of "misrepresentation" (I don't personally believe this, but you could imagine an argument being made).
At one point as a civilization we draw the line and let people take responsibility for their own actions? I believe in the matters of life and death we should subsidize, but education? I'm not sure.